U.S.-China Trade Tensions ‘Non-Factor’ So Far for CRE

Both U.S. and Chinese property markets continue to perform well despite increasing trade tensions between the two countries, reported Cushman & Wakefield, New York.

The Trump administration has said it will propose tariffs on trade partners with whom the U.S. runs a large trade deficit, including China.

“Most of the tariff proposals have not yet gone into effect,” Cushman & Wakefield Chief Economist Kevin Thorpe said in the firm’s U.S.-China Trade Tensions: Impact on Property Markets report. “So far, a lot of bluster–not a lot of action.”

The report called the trade issue largely a “non-factor” so far in terms of any impact on property markets and capital flows. “China and the U.S. continue to negotiate. Progress is being made but the situation remains very fluid,” the report said. “Given the strong economic ties between China and the U.S., the probability of a full-blown trade war is very low.”

In the meantime, China continues to absorb “significant” amounts of real estate, Cushman said. “In fact, since the beginning of the Trump administration, China has absorbed a record 72.1 million square feet of office space.” Similarly, U.S. economic fundamentals remain largely unfazed by Chinese retaliatory threats made during the first quarter. U.S. job growth remains robust and demand for office space accelerated 14 percent year-over-year across U.S. markets.

The U.S. industrial sector–which would be most directly impacted by any potential tariffs–saw its occupancy rate climb to 95 percent in the first quarter, the highest rate in more than 25 years, the report said.

Cushman noted signs the U.S. and China are “inching toward compromise.” Both countries released a statement last month pledging not to engage in a trade war. In addition, both sides agreed to make minor concessions.

But a “darker scenario” still looms, the report said. One result could be “a flurry” of tariffs from multiple nations that would be forced to retaliate in order to protect their own domestic industries. This could affect property markets. “Most product types would eventually be negatively affected, but the industrial sector would be hit first and hardest,” Cushman said. “Commercial property prices would decline across most product types and geographies. In particular, the globe’s largest cities which have benefited greatly from foreign capital inflows would suffer the greatest losses as strict capital controls are implemented by many nations.”